We’ve all seen the ads. “Need cash fast?” a speaker asks. “Have bad credit? You can get up to $1,000 within 24 hours.” The ad then directs you to a sketchy-sounding website, like 44cash.com, or a slightly-less-sketchy-sounding business, like PLS Loan Store. Most of us roll our eyes or go grab another beer when these commercials air. But 12 million people a year turn to payday lenders, who disguise the real cost of these loans. Borrowers often become saddled with unaffordable loans that have sky-high interest rates.

For years, states have tried to crack down on these deceptive business practices. Now, the Consumer Financial Protection Bureau (CFPB) is giving it a shot. On Monday, the New York Times reported that the CFPB will soon issue the first draft of new regulations on the $46 billion payday-lending industry. The rules are being designed to ensure borrowers have a better understanding of the real cost of payday loans and to promote a transparent and fair short-term lending market.

On the surface, payday loans sound like a good idea to many cash-strapped Americans. They offer a short-term loan—generally two weeks in length—for a fixed fee, with payment generally due on the borrower’s next payday. The average borrower takes out a $375 two-week loan with a fee of $55, according to the Pew Charitable Trust’s Safe Small-Dollar Loans Research Project which has put out multiplereports on payday lenders over the past few years. But payday lenders confuse borrowers in a couple of ways.

First, borrowers are rarely able to pay back their loans in two weeks. So they “roll over” the payday loan by paying just the $55 fee. Now, they don’t owe the $375 principal for another two weeks, but they’re hit with another $55 fee. That two-week, $375 loan with a $55 fee just effectively became a four-week, $375 loan with a $110 fee. If, after another two weeks, they still can’t repay the principal, then they will roll it over again for yet another $55 fee. You can see how quickly this can spiral out of control. What started as a two-week loan can last for months at a time—and the fees borrowers incur along the way end up dwarfing the principle. Pew found that the average borrower paid $520 in fees for the $375 loan, which was rolled over an average of eight times. In fact, using data from Oklahoma, Pew found that “more borrowers use at least 17 loans in a year than just one.”

Second, borrowers are often confused about the cost of the loan. The $55 fee—payday lenders often advertise a fee of $15 per $100 borrowed—sounds like a reasonable price for a quick infusion of cash, especially compared to a credit card with a 24-percent annual percentage rate (APR). But that’s actually an extremely high price. Consider the standard two-week, $375 loan with a $55 fee. If you were to roll that loan over for an entire year, you would pay $1,430 in fees ($55 times 26). That’s 3.81 times the original $375 loan—an APR of 381 percent.

Many borrowers, who badly need money to hold them over until their next paycheck, don’t think about when they’ll actually be able to pull it back or how many fees they’ll accumulate. “A lot of people who are taking out the loan focus on the idea that the payday loan is short-term or that it has a fixed $55 fee on average,” said Nick Bourke, the director of the Pew research project. “And they make their choice based on that.”

Lenders advertise the loans as a short-term fix—but their business model actually depends on borrowers accruing fees. That was the conclusion of a 2009 study by the Federal Reserve of Kansas City. Other research has backed up the study’s findings. “They don’t achieve profitability unless their average customer is in debt for months, not weeks,” said Bourke. That’s because payday lending is an inefficient business. Most lenders serve only 500 unique customers a year, Pew found. But they have high overhead costs like renting store space, maintaining working computers, and payroll. That means lenders have to make a significant profit on each borrower.

It’s also why banks and other large companies can offer short-term loans at better prices. Some banks are offering a product called a “deposit advance loan” which is nearly identical to a payday loan. But the fees on those loans are far smaller than traditional payday loans—around $7.50-$10 per $100 loan per two-week borrowing period compared with $15 per $100 loan per two-week period. Yet short-term borrowers are often unaware of these alternatives. In the end, they often opt for payday loans, which are much better advertised.

The CFPB can learn a lot about how to (and how not to) formulate its upcoming regulations from state efforts to crack down on payday lenders. Fourteen states and the District of Columbia have implemented restrictive rules, like setting an interest-rate cap at 36 percent APR, that have shutdown the payday-loan business almost entirely. Another eight states have created hybrid systems that impose some regulations on payday lenders, like requiring longer repayment periods or lower fees, but have not put them out of business. The remaining 28 states have few, if any, restrictions on payday lending:

The CFPB doesn’t have the power to set an interest rate cap nationally, so it won’t be able to stop payday lending altogether. But that probably shouldn’t be the Bureau’s goal anyways. For one, eliminating payday lending could have unintended consequences, such as by driving the lending into other unregulated markets. In some states, that seems to have already happened, with payday lenders registering as car title lenders, offering the same loans under a different name. Whether it would happen on a large scale is less clear. In states that have effectively outlawed payday lending, 95 percent of borrowers said they do not use payday loans elsewhere, whether from online payday lenders or other borrowers. “Part of the reason for that is people who get payday loans [are] pretty much mainstream consumers,” Bourke said. “They have a checking account. They have income, which is usually from employment. They’re attracted to the idea of doing business with a licensed lender in their community. And if the stores in the community go away, they’re not very disposed towards doing business with unlicensed lenders or some kind of loan shark.”

In addition, borrowers value payday lending. In Pew’s survey, 56 percent of borrowers said that the loan relieved stress compared to just 31 percent who said it was a source of stress. Forty-eight percent said payday loans helped borrowers, with 41 percent saying they hurt them. In other words, the short-term, high-cost lending market has value. But borrowers also feel that lenders take advantage of them and the vast majority want more regulation.

So what should that regulation look like? Bourke points to Colorado as an example. Lawmakers there capped the annual interest payment at 45 percent while allowing strict origination and maintenance fees. Even more importantly, Colorado requires lenders to allow borrowers to repay the loans over at least six months, with payments over time slowly reducing the principal. These reforms have been a major success. Average APR rates in Colorado fell from 319 percent to 129 percent and borrowers spent $41.9 million less in 2012 than in 2009, before the changes. That’s a 44 percent drop in payments. At the same time, the number of loans per borrower dropped by 71 percent, from 7.8 to 2.3.

The Colorado law did reduce the number of licensed locations by 53 percent, from 505 to 238. Yet, the number of individual consumers fell just 15 percent. Overall, that leads to an 81 percent increase in borrowers per store, making the industry far more efficient and allowing payday lenders to earn a profit even with lower interest rates and a longer repayment period.

Bourke proposes that the CFPB emulate Colorado’s law by requiring the lenders to allow borrowers to repay the loans over a longer period. But he also thinks the Bureau could improve upon the law by capping payments at 5 percent of borrower’s pretax income, known as an ability-to-repay standard. For example, a monthly payment should not exceed 5 percent of monthly, pretax income. Lenders should also be required to clearly disclose the terms of the loan, including the periodic payment due, the total cost of the loan (all fee and interest payments plus principal), and the effective APR.

The CFPB hasn’t announced the rules yet. But the Times report indicated that the Bureau is considering an ability-to-repay standard. The CFPB may also include car title lenders in the regulation with the hope of reducing payday lenders’ ability to circumvent the rules. However, instead of requiring longer payment periods, the agency may instead limit the number of times a lender could roll over a borrower’s loan. In other words, borrowers may only be able to roll over the loan three or four times a year, preventing them from repeatedly paying the fee.

If the Bureau opts for that rule, it could limit the effectiveness of the law. “That kind of tries to tackle a problem of repeat borrowing and long-term borrowing but that’s a symptom,” Bourke said. “That’s not really the core disease. The core disease is unaffordable payments.” In addition, it could prevent a transparent market from emerging, as payday lenders continue to take advantage of borrowers’ ignorance over these loans. “The market will remain in this mire,” Burke added, “where it’s dominated by a deceptive balloon payment product that makes it difficult for consumers to make good choices but also makes it difficult for better types of lenders to compete with the more fair and transparent product.” Ultimately, that’s in the CFPB’s hands.

At least six people have been jailed in Texas over the past two years for owing money on payday loans, according to a damning new analysis of public court records.

The economic advocacy group Texas Appleseed found that more than 1,500 debtors have been hit with criminal charges in the state — even though Texas enacted a law in 2012 explicitly prohibiting lenders from using criminal charges to collect debts.

According to Appleseed’s review, 1,576 criminal complaints were issued against debtors in eight Texas counties between 2012 and 2014. These complaints were often filed by courts with minimal review and based solely on the payday lender’s word and frequently flimsy evidence. As a result, borrowers have been forced to repay at least $166,000, the group found.

Appleseed included this analysis in a Dec. 17 letter sent to the Consumer Financial Protection Bureau, the Texas attorney general’s office and several other government entities.

It wasn’t supposed to be this way. Using criminal courts as debt collection agencies is against federal law, the Texas constitution and the state’s penal code. To clarify the state law, in 2012 the Texas legislature passed legislation that explicitly describes the circumstances under which lenders are prohibited from pursuing criminal charges against borrowers.

It’s quite simple: In Texas, failure to repay a loan is a civil, not a criminal, matter. Payday lenders cannot pursue criminal charges against borrowers unless fraud or another crime is clearly established.

In 2013, a devastating Texas Observer investigation documented widespread use of criminal charges against borrowers before the clarification to state law was passed.

Ms. Jones, a 71-year-old who asked that her first name not be published in order to protect her privacy, was one of those 1,576 cases. (The Huffington Post reviewed and confirmed the court records associated with her case.) On March 3, 2012, Jones borrowed $250 from an Austin franchise of Cash Plus, a payday lender, after losing her job as a receptionist.

Four months later, she owed almost $1,000 and faced the possibility of jail time if she didn’t pay up.

The issue for Ms. Jones — and most other payday borrowers who face criminal charges — came down to a check. It’s standard practice at payday lenders for borrowers to leave either a check or a bank account number to obtain a loan. These checks and debit authorizations are the backbone of the payday lending system. They’re also the backbone of most criminal charges against payday borrowers.

Ms. Jones initially obtained her loan by writing Cash Plus a check for $271.91 — the full amount of the loan plus interest and fees — with the understanding that the check was not to be cashed unless she failed to make her payments. The next month, when the loan came due, Jones didn’t have the money to pay in full. She made a partial payment, rolling over the loan for another month and asking if she could create a payment plan to pay back the remainder. But Jones told HuffPost that CashPlus rejected her request and instead deposited her initial check.

Jones’ check to Cash Plus was returned with a notice that her bank account had been closed. She was then criminally charged with bad check writing. Thanks to county fines, Jones now owed $918.91 — just four months after she had borrowed $250.

In Texas, bad check writing and “theft by check” are Class B misdemeanors, punishable by up to 180 days in jail as well as potential fines and additional consequences. In the typical “hot check” case, a person writes a check that they know will bounce in order to buy something.

But Texas law is clear that checks written to secure a payday loan, like Jones’, are not “hot checks.” If the lender cashes the check when the loan is due and it bounces, the assumption isn’t that the borrower stole money by writing a hot check –- it’s just that they can’t repay their loan.

That doesn’t mean that loan transactions are exempt from Texas criminal law. However, the intent of the 2012 clarification to state law is that a bounced check written to a payday lender alone cannot justify criminal charges.

Yet in Texas, criminal charges are frequently substantiated by little more than the lender’s word and evidence that is often inadequate. For instance, the criminal complaint against Jones simply includes a photocopy of her bounced check.

Making matters worse, Texas Justice of the Peace courts, which handle claims under $10,000, appear to be rubber-stamping bad check affidavits as they receive them and indiscriminately filing criminal charges. Once the charges are filed, the borrower must enter a plea or face an arrest warrant. If the borrower pleads guilty, they must pay a fine on top of the amount owed to the lender.

Jones moved after she borrowing from Cash Plus, so she did not get notice of the charges by mail. Instead, a county constable showed up at her new address. Jones said she was terrified and embarrassed by the charges. She had to enter a plea in the case or else face an arrest warrant and possible jail time. In addition to the fines, Jones was unable to renew her driver’s license until the case was resolved.

Craig Wells, the president and CEO of Cash Plus, which is based in California but has about 100 franchises in 13 states, told HuffPost that “this was the first I’ve heard of this case.” He said that the company instructs its franchises to adhere to all state laws and regulations. On the company’s website, Wells says his goal is for Cash Plus to be “as-close-to-perfect-a-business-as-one-can-get,” adding that the company’s “top-notch customer experience keeps them coming back over and over again. ”

Emilio Herrera, the Cash Plus franchisee who submitted the affidavit against Jones, told HuffPost that he does not remember her case. But he added that he tries to work out payment plans with all his customers, and that it is common for his customers to pay back loans in very small increments.

In response to a request for comment from HuffPost about Appleseed’s letter, Consumer Financial Protection Bureau spokesman Sam Gilford said, “Consumers should not be subjected to illegal threats when they are struggling to pay their bills, and lenders should not expect to break the law without consequences.”

One reason that lenders’ predatory behavior continues is simple administrative overload. Travis County Justice of the Peace Susan Steeg, who approved the charges against Jones, told HuffPost that due to the volume of bad check affidavits her court receives, her office has been instructed by the county attorney to file charges as affidavits are submitted. The charges are then passed along to the county attorney’s office. It is up to the county attorney to review the cases and decide whether to prosecute or dismiss them.

But Travis County Attorney David Escamilla told HuffPost that his office had never instructed the Justice of the Peace courts to approve all bad check complaints, and said he did not know why or where Steeg would have gotten that understanding. “We don’t do it,” Escamilla said, referring to the usage of the criminal hot checks process to enforce the terms of lending agreements.

When cases are wrongfully filed by payday lenders, how quickly they are dismissed depends on prosecutors’ workload and judgment. Often, it is not clear that theft by check cases are payday loans, since the name of the payday lender is not immediately distinguishable from that of an ordinary merchant.

District attorneys may also receive these complaints and have the ability to file criminal charges. According to Ann Baddour, a policy analyst at Appleseed, the DAs seem to operate with more discretion than the county attorneys, but the outcomes were arguably as perverse. Baddour said one DA told her that of the hot check complaints he had received, none had led to criminal charges or prosecutions. Instead, he said, his office sent letters threatening criminal charges unless the initial loan amounts plus fees were repaid.

The DA, who seemed to think he was showing evidence of his proper conduct, was instead admitting that his office functioned as a debt collector.

With the help of free legal aid, Jones’ case was eventually dismissed, and she said the court waived her outstanding payment to Cash Plus. But not all debtors are as fortunate.

Despite being against state law, the data show that criminal complaints are an effective way for payday lenders to get borrowers to pay. Of the 1,576 criminal complaints Appleseed analyzed, 385 resulted in the borrower making a repayment on their loan. In Collin County alone, 204 of the 700 criminal complaints based on payday lenders’ affidavits ended in payments totaling $131,836.

This success in using criminal charges to coerce money from borrowers means that payday lenders have a financial incentive to file criminal charges against debtors with alarming regularity — even if those charges are eventually rightfully dismissed.

Because Appleseed’s study only covered eight of Texas’ 254 counties, there are likely more cases statewide. And Texas is not alone. In 2011, The Wall Street Journal found that more than a third of states allow borrowers to be jailed, even though federal law mandates that loan repayment be treated as a civil issue rather than a criminal one.

“There’s a lot more to learn about the practice itself, how widely it’s used, and its effect on consumers,” Mary Spector, a law professor at Southern Methodist University who specializes in debt collection issues, told HuffPost. “I think they’ve uncovered the tip of the iceberg.”

Some payday loans carry interest rates as much as 400% to 700% and may not allow early pay offs.

Southfield, MI (PRWEB) December 19, 2014

Consumers who have financial trouble during the holidays may be enticed to bridge the gap between paychecks by obtaining a payday loan. Better Business Bureau (BBB) Serving Eastern Michigan is warning consumers to be cautious, as these loans typically have very high fees and interest rates as well as questionable sales and collection tactics that confuse and intimidate borrowers.

Payday loans are loans of short duration, usually two weeks, and can be obtained from a physical payday loan store or on the internet. Better Business Bureau receives hundreds of complaints against payday loan companies alleging threats of arrest and notifications to employers about their debt. Complaints also state that consumers who apply for loans online, may not see the full disclosure of interest rates or fees until after they have signed the documents and that there are unauthorized withdrawals from their bank accounts.

Typically, payday lenders do not perform a credit check but ask borrowers to write them a post-dated check for the amount they borrow plus a borrowing and account set-up fee. The lenders will then deposit the check after the borrower’s payday if they have not already paid off the loan. If the borrower’s bank account cannot cover the amount of the loan, they will then owe the original loan plus added interest and they may also incur overdraft fees from their bank. Borrowers can chose to pay more fees to renew the loan if they know they cannot pay it off in time. This practice creates a cycle of consumer refinancing and continuous debt.

Payday loans are regulated in Michigan in most cases. For example, a payday lender can only have one outstanding payday loan per customer for a loan amount of up to $600. A customer may take out a second loan with a different payday lender, and can only have two outstanding payday loans at any given time. The payday lender may charge up to 15% on the first $100, 14% on the second $100, 13% on the third $100, 12% on the fourth $100, and 11% on the fifth and sixth $100.

Consumers should be aware that some payday loan companies, such as those operated by Native American tribes, may have tribal sovereign immunity from laws that govern other lenders. These loans often carry interest rates as much as 400% to 700% and may not allow early pay offs, resulting in a cycle of perpetual debt for the borrower. The Consumer Financial Protection Bureau recently released a report that analyzed payday lending and found that four out of five payday loans are rolled over or renewed within 14 days.

Alternatives to Payday Loans

Before you decide to take out a payday loan, consider some alternatives:

1. Consider a small loan from your credit union or a small loan company. Some banks may offer short-term loans for small amounts at competitive rates. A local community-based organization may make small business loans to people. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds: find out the terms before you decide. In any case, shop first and compare all available offers.

2. Shop for the credit offer with the lowest cost. Compare the APR and the finance charge, which includes loan fees, interest and other credit costs. You are looking for the lowest APR. Military personnel have special protections against high fees or rates, and all consumers in some states and the District of Columbia have some protections dealing with limits on rates. Other credit offers may come with lower rates and costs.

3. Contact your creditors or loan servicer as quickly as possible if you are having trouble with your payments, and ask for more time. Many may be willing to work with consumers who they believe are acting in good faith. They may offer an extension on your bills; make sure to find out what the charges would be for that service — a late charge, an additional finance charge, or a higher interest rate.

4. Contact your local consumer credit counseling service if you need help working out a debt repayment plan with creditors or developing a budget. Non-profit groups in every state offer credit guidance to consumers for no or low cost. You may want to check with your employer, credit union, or housing authority for no- or low-cost credit counseling programs, too.

5. Make a realistic budget, including your monthly and daily expenditures, and plan, plan, plan. Try to avoid unnecessary purchases: the costs of small, every-day items like a cup of coffee add up. At the same time, try to build some savings: small deposits do help. A savings plan — however modest — can help you avoid borrowing for emergencies. Saving the fee on a $300 payday loan for six months, for example, can help you create a buffer against financial emergencies.

6. Find out if you have — or if your bank will offer you — overdraft protection on your checking account. If you are using most or all the funds in your account regularly and you make a mistake in your account records, overdraft protection can help protect you from further credit problems. Find out the terms of the overdraft protection available to you — both what it costs and what it covers. Some banks offer “bounce protection,” which may cover individual overdrafts from checks or electronic withdrawals, generally for a fee. It can be costly, and may not guarantee that the bank automatically will pay the overdraft.

The bottom line on payday loans: Try to find an alternative. If you must use one, try to limit the amount. Borrow only as much as you can afford to pay with your next paycheck — and still have enough to make it to next payday.

Collection activities are subject to the federal Fair Debt Collection Practices Act. Therefore, if you have questions regarding debt collection laws please contact the Federal Trade Commission at 1-877-FTC HELP, or online at http://www.ftc.gov. Debt collectors cannot state or imply that failure to pay a debt is a crime.

Founded in 1986 and based in Riverwoods, IL, Discover Financial Services is a direct banking and payment services company in the United States. The company offers credit cards, personal, student and home loans as well as deposit products. In Mar 2009, Discover Financial became a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act in connection with its participation in the U.S. Treasury’s Capital Purchase Program.

Discover Financial offers its products and services with acceptance in more than 185 countries and territories. The company operates through three networks:

The Direct Banking segment (accounted for 96% of total revenue in 2013), formerly referred to as the U.S. Card segment, includes Discover card-branded credit cards issued to individuals and small businesses in the Discover Network. The segment also offers personal loans, student loans, home loans, prepaid cards and other consumer lending and deposit products.

The Payment Services segment (4%), formerly referred to as the Third-Party Payments segment, includes PULSE, Diners Club and its network partners business (previously referred to as the third-party issuing business), which includes credit, debit and prepaid cards issued by the third parties on the Discover Network.

Discover Financial continues to grow inorganically through acquisitions. In Dec 2010, the company acquired The Student Loan Corporation (SLC) in a merger transaction for $600 million and received a purchase price closing adjustment in a cash payment of approximately $234 million from Citibank, the 80% owner of SLC before the merger, resulting in a net cash outlay of approximately $366 million for the acquisition of SLC. In the transaction, Discover Financial acquired SLC’s ongoing private student loan business and approximately $4.2 billion of private student loans and other assets, along with approximately $3.4 billion of SLC’s existing asset-backed securitization debt funding and other liabilities. It also acquired the loans and other assets at an 8.5% discount. SLC is now a wholly owned subsidiary of Discover Bank.

In June 2012, Discover Financial announced the completion of the purchase of almost all operating and related assets of Tree.com Inc.’s subsidiary Home Loan Center. The company has already paid $49 million for the deal, including payments made prior to the closing. Another $10 million was paid on the first anniversary of the closing date, that is, June 2013. Home Loan Center originates and processes residential mortgage loans across all 50 U.S. states as well as the District of Columbia.

Following the acquisition of Home Loan Center, Discover Financial expanded its product portfolio to include residential mortgage with the launch of Discover Home Loans in June 2012. The company now offers commercial and Federal Housing Administration loans with both variable and fixed rates.

In Dec 2012, Discover Financial’s board approved a change in its fiscal year to Jan 1 Dec 31, effective from Jan 2013. Earlier, the company’s fiscal year ended on Nov 30. Due to the change, Dec 2012 was a transition period and was reported separately with the financial results for the first quarter of 2013 and full-year 2013.

Discover Financial Services (DFS): Read the Full Research Report

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.

The challenge was simple, or so it seemed: Pay my bills and complete a handful of money-related errands before my work shift began at noon. It was harder than I ever could have imagined.

In reality, I wasn’t handling my own finances; I was participating in a simulation of what it’s like to be one of the underbanked—that is, to be one of the 7.7% of Americans with limited access to traditional banking services. The Financial Solutions Lab, a spin-off of the Center for Financial Services Innovation (CFSI), put on the simulation for a group of entrepreneurs, nonprofit employees, and banking executives so that they could come up with new product ideas for addressing the challenges of cash flow management.

We ended up waiting for nearly half an hour while the store decided it couldn’t cash one of the checks.

During the two-hour simulation, the group was split up into teams and given a series of tasks to complete. These included buying a general purpose re-loadable card (GPR) and loading it up with cash, cashing a payroll check and a personal check, completing a money transfer and then picking up a money transfer card from another team, and paying the balance of a monthly rent bill.

My team—Paul Breloff, managing director of the Accion Venture Lab, Ethan Bloch, the CEO of digit, and myself—walked around San Francisco’s Mission District, popping into the payday loan and cash advance outfits, with names like Ace Cash Express and Money Mart, that I had passed so many times before without even a second glance.

Our first problem came at Ria’s, a storefront where we planned to cash our checks and load up our GPR card. We ended up waiting for nearly half an hour while the store decided it couldn’t cash one of the checks because we couldn’t immediately get verification from the sender that it was legitimate.

Ace Cash was willing to take care of the checks and GPR quickly, but for a significantly higher fee. Still, Ace Cash refused to let us pay the $10 balance from our monthly rent bill. The transaction was “declined for unspecified reasons.”

Western Union presented yet another challenge. Upon arriving at the storefront, we were told that their system was down. Eventually, we were told that the other team instructed to pick up our money transfer could do so at any Western Union—but we were charged a $5 fee for our $30 transaction.

Though we failed to complete our tasks, my team still won the competition. The other teams, apparently, finished even fewer tasks.

Normally, I take care of the vast majority of my financial transactions online. But as the FinX simulation made clear, the options for the underbanked are often limited to opaque in-person transactions that suck up large amounts of time. These transactions are unreliable; one team couldn’t pay their rent check because of a systems failure at a storefront, and Western Union failed us all. Customers have to wait on long lines, and there are few options for self-service.

All of these pain points are fixable, and there are plenty of startups that are working in the underbanked financial services space. None have really taken off yet, but CFSI is hoping that its new Financial Solutions Lab—a $30 million, five year initiative that will offer funding and resources to financial security entrepreneurs—will provide new solutions.

For now, banking without a traditional bank account remains a time-consuming, exhausting experience.

United States Court of Appeals for the Second Circuit has denied a request by two Native American Tribes to stop New York State’s top financial regulator from cracking down on their online lending businesses. The decision comes more than a year after the Tribes sued Benjamin M. Lawsky, Superintendent of the state’s Department of Financial Services, arguing that he had overstepped his jurisdictional bounds in trying to regulate business activity that takes place on Tribal reservations in Oklahoma and Michigan.

The ruling upholds a decision from Judge Richard Sullivan of Federal District Court in Manhattan, who suggested that once tribal businesses go online to attract consumers – many of whom live far beyond the borders of their reservations – the Tribes effectively lose their rights to operate as sovereign nations.

In their lawsuit, the Otoe Missouria Tribe in Red Rock, Oklahoma and the Lac Vieux Desert Bank of Lake Superior Chippewa Indians in Watersmeet, Michigan argued that their sovereign status shielded them from the reach of New York State. The appeals court disagreed, outlining in a 33-page opinion that the borrowers reside in New York and received the loans “certainly without traveling to the reservation.” The decision is the latest setback for the Tribes. Last year, the Consumer Financial Protection Bureau rejected an argument from three Tribal online lenders that argued their sovereign status protected them from an investigation by the agency.

The lawsuit is continuing in federal district court, and the opinion does note that “a court might ultimately conclude that… the transaction being regulated by New York could be regarded as on?reservation, based on the extent to which one side of the transaction is firmly rooted on the reservation.”

Federal authorities have asked a U.S. district judge to freeze the business activity and assets of a network of payday loan companies purportedly controlled by two local men.

The Federal Trade Commission earlier this month asked for injunctions against more than a dozen payday loan businesses controlled by two Johnson County men, Timothy A. Coppinger and Frampton T. Rowland III.

Those companies allegedly made about $28 million in payday loans over one 11-month period, “extracting” more than $46.5 million in return, according to federal court records.

“Defendants’ tactics serve the single purpose of bilking cash-strapped consumers out of as much money as possible,” federal lawyers alleged in court filings.

In some cases, the companies purchased consumer data and then gave loans to “customers” who never asked for them and then improperly took finance charges from their bank accounts, they allege.

The defendants also misrepresented the costs of their loans and then extracted finance charges from their borrowers’ bank accounts every two weeks, without every applying any of the payments to the loan principal, the lawsuit alleges.

FTC lawyers filed the lawsuit under seal, which was lifted after U.S. District Judge Dean Whipple entered a 35-page temporary restraining order and appointed a receiver to take control of the companies.

Coppinger could not be reached for comment Monday afternoon. Rowland directed questions to his lawyer, Phillip G. Greenfield, who said he planned to fight for Rowland and the companies he controls.

“We disagree with the allegations directed at them and we intend to vigorously defend them in court,” Greenfield said.

One purported victim in the scheme, a Massachusetts man, wrote in an affidavit filed as part of the lawsuit that he lost his business, a barbershop, because of unauthorized withdrawals from his account and overdraft fees.

The man also said bill collectors had hounded him for payments on a loan he never requested.

“I am trying to start a new business, but it has been difficult since I am afraid to answer the phone,” the man wrote.

Payday lender ACE Cash Express is hit with a $10M fine

28th July 2014 · 0 Comments

By Charlene CrowellNNPA Writer

(NNPA) – For the second time in as many years, the Consumer Financial Protection Bureau (CFPB) has fined a major payday lender. On July 10, Director Richard Cordray announced that one of the nation’s largest payday lenders, ACE Cash Express, will pay $10 million in restitution and penalties for directing its employees to “create a sense of urgency” when contacting delinquent borrowers. This abusive tactic was used to perpetuate the payday loan debt trap.

CFPB has ordered ACE Cash Express to provide consumers with $5 million in refunds and the same amount in penalties for its violations. The firm operates in 36 states and in the District of Columbia with 1,500 storefronts, 5,000 associates and online loans.

“We believe that ACE’s aggressive tactics were part of a culture of coercion aimed at pressuring payday borrowers into debt traps,” said Cordray. “Our investigation uncovered a graphic in ACE’s training manual that lays out a step-by-step loan and collection process that can ensnare consumers in a cycle of debt. When borrowers could not pay back their loans, ACE would subject them to illegal debt collection threats and harassment.”

Commenting on CFPB’s actions, Mike Calhoun, president of the Center for Responsible Lending, said, “This enforcement action also confirms what our research found long ago: payday lenders depend on keeping vulnerable consumers trapped in an endless cycle of debt of 300-400 percent interest loans. . . .It’s real, it’s abusive and it’s time to stop.”

CRL research shows that payday loans drain $3.4 billion a year from consumers. Further, CRL has long held that the payday industry preys on customers who cannot repay their loans.

Now, with CFPB releasing an item from ACE Cash Express’ training manual, that contention is proven to be true. The ACE graphic shows how the business model intends to create a debt cycle that becomes increasingly difficult to break and urges its associates to be aggressive.

Across the country, the South has the highest concentration of payday loan stores and accounts for 60 percent of total payday lending fees. Missouri is the only state outside of the South with a comparable concentration of payday stores.

Last year, another large payday lender, the Fort Worth-based Cash America International, faced similar enforcement actions when CFPB ordered it to pay $5 million in fines for robo-signing court documents submitted in debt collection lawsuits. Cash America also paid $14 million to consumers through one of its more than 900 locations throughout the United States, Mexico and the United Kingdom.

On the same day that the CFPB’s enforcement action occurred, another key payday- related development occurred.

Missouri Gov. “Jay” Nixon vetoed a bill that purported to be payday reform. In part, Gov. Nixon’s veto letter states, “allowing payday lenders to charge 912.5 percent for a 14-day loan is not true reform. . . Supporters point to the prohibition of loan rollovers; but missing from the legislation is anything to address the unfortunately all-too-common situation where someone living paycheck-to-paycheck is offered multiple loans by multiple lenders at the same time or is encouraged to take out back-to-back loans from the same lender. . . .This bill cannot be called meaningful reform and does not receive my approval.”

On the following day, July 11, the Federal Trade Commission (FTC) fined a Florida-based payday loan ‘broker’ $6.2 million in ill-gotten gains. According to FTC, the firm falsely promised to help consumers get payday loans. After promising consumers to assist them in securing a loan in as little as an hour, consumers shared their personal financial data. However that information was instead used to take money from consumers’ bank accounts and without their consent.

Speaking on behalf of the FTC, Jessica Rich, director of FTC’s Bureau of Consumer Protection, said, “These defendants deceived consumers to get their sensitive financial data and used it to take their money. The FTC will continue putting a stop to these kinds of illegal practices.”

“Debt collection tactics such as harassment and bullying take a profound toll on people – both financially and emotionally”, said Cordray. “The Consumer Bureau bears an important responsibility to stand up for those who are being wronged in this process.”

This article originally published in the July 28, 2014 print edition of The Louisiana Weekly newspaper.

Payday lender ACE Cash Express is hit with a $10M fine

28th July 2014 · 0 Comments

By Charlene CrowellNNPA Writer

(NNPA) – For the second time in as many years, the Consumer Financial Protection Bureau (CFPB) has fined a major payday lender. On July 10, Director Richard Cordray announced that one of the nation’s largest payday lenders, ACE Cash Express, will pay $10 million in restitution and penalties for directing its employees to “create a sense of urgency” when contacting delinquent borrowers. This abusive tactic was used to perpetuate the payday loan debt trap.

CFPB has ordered ACE Cash Express to provide consumers with $5 million in refunds and the same amount in penalties for its violations. The firm operates in 36 states and in the District of Columbia with 1,500 storefronts, 5,000 associates and online loans.

“We believe that ACE’s aggressive tactics were part of a culture of coercion aimed at pressuring payday borrowers into debt traps,” said Cordray. “Our investigation uncovered a graphic in ACE’s training manual that lays out a step-by-step loan and collection process that can ensnare consumers in a cycle of debt. When borrowers could not pay back their loans, ACE would subject them to illegal debt collection threats and harassment.”

Commenting on CFPB’s actions, Mike Calhoun, president of the Center for Responsible Lending, said, “This enforcement action also confirms what our research found long ago: payday lenders depend on keeping vulnerable consumers trapped in an endless cycle of debt of 300-400 percent interest loans. . . .It’s real, it’s abusive and it’s time to stop.”

CRL research shows that payday loans drain $3.4 billion a year from consumers. Further, CRL has long held that the payday industry preys on customers who cannot repay their loans.

Now, with CFPB releasing an item from ACE Cash Express’ training manual, that contention is proven to be true. The ACE graphic shows how the business model intends to create a debt cycle that becomes increasingly difficult to break and urges its associates to be aggressive.

Across the country, the South has the highest concentration of payday loan stores and accounts for 60 percent of total payday lending fees. Missouri is the only state outside of the South with a comparable concentration of payday stores.

Last year, another large payday lender, the Fort Worth-based Cash America International, faced similar enforcement actions when CFPB ordered it to pay $5 million in fines for robo-signing court documents submitted in debt collection lawsuits. Cash America also paid $14 million to consumers through one of its more than 900 locations throughout the United States, Mexico and the United Kingdom.

On the same day that the CFPB’s enforcement action occurred, another key payday- related development occurred.

Missouri Gov. “Jay” Nixon vetoed a bill that purported to be payday reform. In part, Gov. Nixon’s veto letter states, “allowing payday lenders to charge 912.5 percent for a 14-day loan is not true reform. . . Supporters point to the prohibition of loan rollovers; but missing from the legislation is anything to address the unfortunately all-too-common situation where someone living paycheck-to-paycheck is offered multiple loans by multiple lenders at the same time or is encouraged to take out back-to-back loans from the same lender. . . .This bill cannot be called meaningful reform and does not receive my approval.”

On the following day, July 11, the Federal Trade Commission (FTC) fined a Florida-based payday loan ‘broker’ $6.2 million in ill-gotten gains. According to FTC, the firm falsely promised to help consumers get payday loans. After promising consumers to assist them in securing a loan in as little as an hour, consumers shared their personal financial data. However that information was instead used to take money from consumers’ bank accounts and without their consent.

Speaking on behalf of the FTC, Jessica Rich, director of FTC’s Bureau of Consumer Protection, said, “These defendants deceived consumers to get their sensitive financial data and used it to take their money. The FTC will continue putting a stop to these kinds of illegal practices.”

“Debt collection tactics such as harassment and bullying take a profound toll on people – both financially and emotionally”, said Cordray. “The Consumer Bureau bears an important responsibility to stand up for those who are being wronged in this process.”

This article originally published in the July 28, 2014 print edition of The Louisiana Weekly newspaper.

Nichola Popata laid a flower made from flax at a makeshift tribute site to the two men, who she described as “beautiful” and very friendly.

“I just wanted to come and pay my respects to Paul Matthews and Paul Fanning, to just share the love with their whanau and let them know we’re thinking about them at this time,” she said.

She had been “shattered” to hear of their deaths, she said, particularly as she had been in the store on Friday, the day before the deaths.

“I was just here on Friday doing some paperwork with them, they were comfortable, easy to talk to,” she said. “We just shared stories.”

Mr Matthews told her how he had recently returned from a 13-hour round trip to Northland, where he was helping his family who had been trapped by last week’s flooding. He had used his four-wheel drive to create a clearing, and “everybody else was able to follow him in a convoy coming out the back of Dargaville roads,” she said.

Ms Popata said she would remember Mr Fanning as a happy man.

“[He] always stands there and laughs and giggles and says, ‘Oh that’s not my job, go see Paul’.”

She was “quite sad to hear what had happened”.

Both men were “big, stocky guys”, and she had been surprised to hear they had been killed in the store.

Other store workers in the area, who did not want to be named, described the men as “fantastic” and “great guys”, who were well liked in the community.

Many were still in shock after the incident, questioning why it had happened.

Two forensic tents were erected yesterday outside the shop, which was cordoned off.

The 25-year-old man accused of murdering the men has had his name suppression extended.

He appeared in Papakura District Court yesterday charged with the murder of the store’s owner Mr Fanning, 69, and his employee Mr Matthews, 47.

The accused was arrested in Huntly on Saturday night. A woman, who was seen leaving the premises with him, was being treated as a witness, police said at the weekend.

The accused stood in the dock yesterday, dressed in a dark T-shirt with a white logo and dark trousers, and was supported in court by his partner, parents and extended family members.

The public gallery of the court was packed to capacity with family members of both the accused and the victims.

Many were upset, and wiped tears from their eyes. Others stood hugging each other in support.

During the sitting one woman shouted at the double-murder accused, calling him “scum”.

Duty lawyer Kersie Khambatta argued that the accused should be granted name suppression to protect his young family.

He has two young children – a 5-year-old son and 3-year-old daughter – with his partner.

Mr Khambatta said the children, and the accused’s younger sister who was still at school, would be subject to “jeers” and harassment from their classmates if his name was published.

There was also a fear that other family members would be identified by association and would be put “at risk”.

“They say that people out there are very angry and non-suppression of details mean that they would be in danger,” Mr Khambatta said.

The accused was granted interim name suppression by Justice of the Peace Tony Charman until 4pm yesterday. However, the accused appealed the interim decision and took it to the High Court.

Justice John Faire extended name suppression until the man’s next court appearance in August. He was remanded in custody.